I have just finished from a couple of days spent in different conferences focused on the themes of Servitization and Digital Transformation in Milan. Here some reflections.
A big thanks to Zuora (especially to my friend and ex colleague Mauro Cadeddu, relator at the event) and to the ASAP Service Management Forum to have organized such interesting events and to have invited such illuminate thought leader like:
Enzo Baglieri - Director of EMBA Program at Bocconi University
Vinit Parida – Professor of Entrepreneurship & Innovation, Luleå University of Technology
Giulia Baccarin – Entrepreneur and Innovation thought leader - Managing Director I-Care, Co-founder MIPU
and many other experts, practitioners and ambassadors of companies focused on helping organizations succed in their servitization journey - that i cannot name for space reasons - including in this group Stefano Butti, CEO of Servitly, one of our Business Partner and sponsor of the event.
Servitization or Serdigitization
In addition to the illuminating cues offered by the relators, what I also take home about the current situation are on the one hand several concerns, but also many opportunities.
There is still a lot of confusion in the audience about what is Servitization and Digital Transformation and how they should be driven, combined and organized.
In most cases, the impulse towards digital transformation or Servitization business models does not come from strategic thinking but seems to be the result of a random path / reactive approach, often started with departmental approaches.
In this context, there are great opportunities for consulting firms to provide methodological and professional support, provided they can pool strategic, process excellence and technological capabilities in the right sequence and with the right skills.
Such forum can be an important way to create awareness around the need of strategic thinking and action
Indicators of confusion
These thoughts and the indicators that there is still confusion to be cleared, stem out from the synthesis of the various questions that those days have been asked by the audience. The most recurring:
“Which functions shall be involved in the process of Servitization / Digital Transformation? In our company, the guidance is currently in the hands of R&D or IT”
or:
"We started our journey by adding sensors to our machines firstly to monitor them, then we started asking ourselves questions about what we could do with available data to provide some services to our customers"
also:
“How to convince the board that new business models based on digital transformation / servitization need to be undertaken”
or:
“How much new technologies are enabling the development of services?”
The scenario that can be deducted from this kind of questions, is denoting a number of problems that we can summarize as follow:
A lack of understanding that any transformation of a business model - whatever it may be and whatever it may have to become - requires a strategic impulse and a interfunctional approach and commitment in order to succeed.
A false belief that Digitization may lead "naturally" to Servitization.
The Warning
Serdigitization, i.e. an approach to servitization driven mainly by "casual" attempts to leverage digital transformation and the availability of data, without strategic orchestration, is in many cases destined to underperform, if not often to fail.
Interviewing several expert observers of the sector, it seems that this approach covers 70 to 90% of companies that are facing Servitization Journey, a metric that confirms what I observed empirically in the field.
Servitization must be Strategically led to be really successful: it must start from a strategic impulse for the transformation of the business model and therefore adopt all the steps of Strategic Planning.
Business Strategy
To achieve successfully the business goals, the transition to new service-based business model must be supported by a clear and shared Business Strategy, which allocates resources and defines cross-functional strategic objectives, to avoid that the approach to Servitization is just an occasional departmental impulse, without adequate enterprise-wide commitment.
The vision and mission of the Servitization journey must be clearly and completely articulated and must give guidance to executive management on how these objectives should be pursued. It is not a question of convincing the board, but it must be the board that must give the proactive impetus, creating also a sense of urgency to have things done.
The business strategy must be developed with method and rigour: 5C's framework, PESTEL and SWOT analysis, Sustainability Strategy and Triple Bottom Line assessment are just some of the methodologies, with the ultimate goal of identifying a real and sustainable competitive advantage.
Go-to-Market & Competitive Strategy
The design of the Product-Service-System (PSS) offering cannot simply start from the availability of the data and then think about what to do with it. Nor can it be the exclusive domain of a corporate function.
It is necessary to establish an interconnected process of Product-Service-System Design and Market /Customer design in order to define with an inter-functional approach the products-services offerings that fill a need of the market, for which there is demand, that generate value for the customer and for which the customer is willing to pay such value.
Once I understand the PSS I want to offer then I will be able to decide which smart-product information is really useful for my strategy, thus limiting the number of sensors I will install, with the aim of not increasing costs to produce information that add no value.
Operations Strategy Alignment
Maybe the hardest part comes here. Transforming the processes and culture of companies that are used to a traditional model of "produce - inventory- sell" into customer-centric, service-oriented processes and relationship centered culture.
Below, without any intention of being exhaustive, is a series of problems to be faced and overcome.
Problem #1: Business models based on Servitization pivot and must maximize the value of relationships. How do I get a client-facing structure that can maximize relationships? How shall I adapt my performance measurement system to measure how I create, deliver and capture such value in the short to medium and long term?
Problem #2: The value of a service is determined at the time of its use and the customer plays a key role in the process of value creation. This implies the need to stimulate the customer to use the services, and to do it in the correct way (education). The company shall establish new profiles (the Customer Success Managers or Advocates or ambassadors how we ant to call them) with the aim of maximizing the relationship and the creation of value over time. Empowerment of this role and their interaction within the enterprise and network eco-system is crucial.
Problem #3: The service cannot be inventoried. Despite being obvious, the implications are complex. The capacity of assets available to provide a service per unit of time is the company’s very volatile inventory we can count on. This means that supply cannot be decoupled from demand and also that such inventory becomes lost at the same time that these assets are not used. Capacity planning and monitoring of the "chargeability" of this capacity becomes one of the key factor to be profitable, as well as the agility to adapt and change this capacity to react to peaks and downfall of demand.
Problem #4: Aligning operations with the design of the customer experience and the breadth of the offering. Just as I have to adopt the appropriate manufacturing environment (MTS, ATO, MTO or ETO) to satisfy my customers' requests with widely standardized products, offered with limited variety and in high volumes, up to the extreme of widely customizable products offered with extended variety and in low volumes, also when designing the service operations I shall align my service environment to the breadth, level of standardization and volumes of the same (fast food vs. fixed menu vs "a la carte" restaurant).
Problem #5: Is my supplier and distribution network ready to support my new strategy? What actions should I take? Do I need to create a platform with my network or shall I enter into a third party’s managed platform?
Operations Strategy – The role of technology
Technology and Digital Transformation, as said, must be seen as an enabling element; a necessary condition, but not sufficient alone for a successful servitization strategy.
A few considerations:
Technology is now widely available and - with the spread of the cloud - much more easily accessible. So, it tends to be less and less an entry or protection barrier. This shall be accounted when assessing the SWOT and competitive forces for the Servitization strategy
Technology, to support the acquisition of competitive advantages, must be designed with the aim of maximizing competitive priorities and fostering supremacy around order winners and qualifiers. Being easily accessible, the competitive advantage is in how I design it, how I use it and how I constantly improve it to maintain a competitive hedge
Let me explain:
If the order winner for a particular service is the promise to send a technician for an urgent repair within 2 hours of reporting, the back-office processes of opening and routing the ticket must be designed to facilitate the speed of execution, as well as having a sufficient deployment of field-service.
If, on the other hand, the order winner of a service is the price, all processes must be designed with the aim of minimizing costs: for example, minimizing exits of technicians, enhancing technologies for remote diagnostics, filtering the causes of real anomalies from those due to incorrect customer behaviour, etc...
Conclusions
It is clear that the entire mechanism creates a closed loop, with the phases of product and market design and operations strategy alignment strongly interconnected:
the go-to-market strategy in designing the offering to be supplied to satisfy a market need and the related pricing strategy, describes a given customer-service journey that shall be taken as inputs for the design of the service operations strategy
the operations and technology strategy must confirm which performance results can be achieved and at which costs and therefore in turn influence the product/market design.
A successful strategy must find the right balance to maximize the value designed to be offered to the customer, the value really delivered and the portion of the value captured by the company.
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